Rolling Stone magazine has just published a breathtaking account of a whistleblower who personally witnessed fraud at JPMorgan Chase and was willing to testify -- even as the Justice Department claimed it lacked the smoking guns to prosecute big banks.1

For eight years, Alayne Fleischmann has told her story to regulators and government lawyers, only to watch as the Department of Justice settled with JPMorgan Chase out of court, with no admission of guilt, and a much lighter penalty than was initially announced to the public.2 Now, despite a confidentiality agreement covering her time at the bank, she decided to speak out.

For years, federal prosecutors have told the public that they lacked the clear evidence to bring criminal charges against big banks for mortgage security fraud. But if Fleischmann’s account is true, the Justice Department had the evidence but simply chose to ignore it, and instead helped JPMorgan Chase avoid accountability for its crimes.

Tell Attorney General Eric Holder: No more excuses. Time for criminal charges.

At one point, Fleischmann says, the U.S. Attorney General’s Sacramento Office was on the verge of announcing criminal charges based on her testimony. But according to Rolling Stone and other press accounts, the press conference announcing the prosecution was canceled after JPMorgan Chase Chief Jamie Dimon called Tony West, the third-ranking official in the Justice Department, and offered to settle out of court. The attorney general touted the resulting $13 billion settlement as a major victory, even though the bank paid less than $9 billion, was able to write off the penalty on its taxes, and was able to keep its criminal wrongdoing from the public.

A former securities lawyer who worked as a diligence manager evaluating mortgage securities, Fleischmann personally witnessed wrongdoing and even attempted to notify her superiors. The Rolling Stone piece recounts how:

Her bosses in the diligence team insisted on a "no email" rule to avoid a paper record, which one former federal prosecutor says shows "these people knew what they were doing and were trying not to get caught."

Almost 40% of one pool of mortgages were found to be based on overstated incomes or had already defaulted; her bosses pressured diligent workers to revise the number downward to under 10% and gave the resulting security a misleading credit rating.

Fleischmann told her boss that the bank couldn’t sell a security based on those mortgages without telling customers of its content, even if it meant no one would buy it, because to do otherwise would be fraud.

She submitted a memo detailing all of these charges to her superiors, expecting the written record to force an end to the practice.

Fleischmann can today point out “exactly how her bosses at JPMorgan Chase committed financial fraud: It’s right there in the documents.”

JPMorgan Chase’s lawyers worked for years to keep Fleischmann quiet. Now we know why.

Tell Attorney General Eric Holder: No more excuses. Time for criminal charges.

Fleischmann’s story is actually far worse for the Justice Department than it is for JPMorgan Chase. Most observers already knew the general outlines of how mortgage originators and big banks conspired to fake documentation and then sell off bad loans to unwitting investors. In case after case, regulators and the Justice Department settled out of court and pursued specific instances of wrong-doing instead of widespread fraud. The excuse has always been that the government lacked the legal firepower and evidence to go big.

It is not clear whether regulators and the Justice Department believed a settlement was better than the risk of losing a trial, or were helping powerful institutions cover-up their crimes. But it is now plain to see that the problem was not a lack of credible witnesses. In Fleischmann, the government had a graduate of Cornell Law School who would help them press charges -- and simply chose not to.

This past summer, a new set of investigators approached Fleischmann and appear to have restarted the criminal case against JPMorgan Chase. She would not comment on that investigation. But if one thing is clear from the last few years, it’s that investigations like this tend to die before charges are filed. This time – with all the facts that are now public – we cannot let that happen.

Tell Attorney General Eric Holder: No more excuses. Time for criminal charges.

Alayne Fleischmann could face legal, financial, and career repercussions for sharing her story. It’s up to us to make sure it isn’t in vain.